Antoinette Slabbert
2 minute read
11 Nov 2014
7:00 pm

Market cheers Sappi turnaround

Antoinette Slabbert

Paper and pulp manufacturer Sappi has stuck to its promises by returning to profitability and reducing debt considerably in the year ended September 30.

Picture: Thinkstock

Investors received the news with enthusiasm yesterday and by 2pm the share price was up 7%.

The company, with direct and indirect customers in more than 100 countries, turned a $149 million (R1.6 billion) loss in the previous financial year into a $68 million profit.

The group is especially pleased with its reduction of debt to $1.9 billion, which is within its target of being below $2 billion. Reducing debt and costs will remain a focus for the next two years, Sappi CEO Steve Binnie told Business.

“At the end of September 2014 the group had liquidity comprising $528 million cash, in addition to undrawn committed revolving credit facilities of €350 million (R4.8 billion) and R1 billion in Europe and South Africa respectively. In October 2014 we utilised cash resources to redeem $27 million of our $67 million public bonds due April 2015,” he said.

Binnie said performances improved in the European and southern African paper businesses and volumes increased in the high-margin market for dissolving wood pulp.

During the period, the group disposed of the Nijmegen mill to reduce costs and sold its Usutu forests. The North American business had a challenging 12 months, but improvements were expected in the new year, Binnie said.

In the local market, Sappi has been subjected to power outages, especially at its Stanger mill, and and has communicated its concern at the highest level. Its Ngodwana mill is self-sufficient and is actually feeding some energy back into the power grid. The group has applied for a license for co-generation and is awaiting the result.

Binnie said the markets would remain challenging in the new year – both for graphic paper, where demand is declining and for dissolving wood pulp, where price pressure is being experienced. But the demand for dissolving wood pulp remains robust.

Currency movements affect both the South African and European businesses. The weakness of the euro and rand in relation to the US dollar support local and export prices for these businesses, historically offsetting its effect on input prices.

Capital expenditure in the New Year will be focused an investments in the Kirkniemi and Gratkom mills and will be at the same level as in the review period.